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CHAPTER 2. HEALTH PLAN CHOICE 83 cross-firm variation in demographics (xf) that leads plans to submit different bids, idiosyncratic variation in plan bids (νjf), cross-firm and cross-tier variation in employer pass-through rates (γjlf), and idiosyncratic variation in the plan contributions (ξjlf). 18 Figure 2.4 demonstrates this variation by plotting the incremental contributions against the incremental bids for each plan relative to the integrated HMO, which is usually the plan requiring the lowest employee contribution. We plot contribution rates for two tiers, employee only and employee plus spouse, to demonstrate how contributions vary across tier. For the employee plus spouse data, we divide both the contributions and the bids by two to obtain per-enrollee prices. Difference in the bids for the integrated HMO and the network PPO ranges from $50 to $150 per month, with a large fraction due to cross-firm variation in demographic risk. Combinations of incremental contributions and bids that lie along the 45 degree line in Figure 2.3 represent employers who pass on the full marginal cost of higher plan bids to employees. A subset of employers adopt this approach. Another subset of employers fully subsidize the higher cost plans, setting incremental contributions of zero. Between these two extremes are employers who partially subsidize higher cost plans through contribution policies. In general, employers tend to pass on a greater portion of incremental costs for plans with dependent coverage. The availability of multiple sources of variation permits some flexibility in estimat- ing price elasticities. Recall that accurate identification requires using price variation that is not correlated with idiosyncratic household tastes εhj or privately known health risk µh. Our baseline estimates use all four sources of variation. We also employ in- strumental variables to isolate different sources of variation. The instruments are predicted plan contributions based on alternative covariates. The bottom line from these specifications is that our price elasticity estimates are quite robust to focusing on different sources of variation in contributions. This robustness, despite our rela- tively small sample, suggests that endogeneity may not be an important concern, at least in this setting. Nevertheless, we now discuss the issues in detail. 18 We also introduce variation in employee contributions through the imputed marginal tax rates, but we control for imputed income and relevant household demographics in the demand equation.
CHAPTER 2. HEALTH PLAN CHOICE 84 Perhaps the most obvious identification concern is that employers believe their employees will prefer a particular plan and price accordingly. This could mean cater- ing to employees with a low contribution, or setting a high contribution to pass on costs. Either would generate a correlation between the idiosyncratic part of the contribution ξjlf and household preferences εhj. To mitigate this concern, we instrument for the actual plan contribution using the predicted value (ˆpjlf) from the contribution model (2.8). We take this as our preferred specification in performing welfare analysis although the results are similar to the baseline case with no instruments. A second concern is that plan bids are correlated with unobserved household tastes. This could happen if an insurer believed its plan was attractive due to, say, a nearby clinic location. It would generate a correlation between the idiosyncratic bid component, νjf, and household preferences εhj. We view this problem as most likely of marginal importance given the limited information on the part of insurers. Nevertheless, we check our estimates by instrumenting for plan contribution with a predicted value that is constructed by plugging the predicted bid ˆ Bjf from (2.7) into the contribution model (2.8). This specification purges the variation in both νjf and ξjlf. The results are similar to our preferred specification. A third issue for identification is that employer pass-through rates might be sys- tematically influenced by employee preferences. This also seems unlikely, mainly because pass-through rates in our data are uncorrelated with observable differences across firms. Figure 2.4 plots employer pass-through rates against employee health status, dependent health status, worker income and firm size. There is no correlation, suggesting that cross-firm differences in contribution policies may be due more to idiosyncratic factors, such as management philosophy, than employee tastes. Nev- ertheless, we again use an IV strategy to verify that our results are not driven by a correlation between the pass-through coefficients γjlf and unobserved preferences εhj. To this end, we instrument for plan contribution using predicted values from a variant of the contribution model (2.8) in which pass-through coefficients are restricted to be identical across firms. This purges cross-firm variation in γjlf as well as the variation in ξjlf. The results are again similar although with large standard errors. 19 19 A final identification concern is that household choices may be influenced by the health status of
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ESSAYS IN PUBLIC FINANCE AND INDUST
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I certify that I have read this dis
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insurance choice. Among other thing
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Acknowledgements I am deeply thankf
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Contents Preface iv Acknowledgement
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2.5.3 The Value of Plan Choice ....
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List of Tables 1.1 Asset Exemption
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4.9 First Week Contract Spending fo
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4.3 I.T. Contracting by Week ......
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CHAPTER 1. BANKRUPTCY 2 of the dead
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CHAPTER 1. BANKRUPTCY 4 relevant le
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CHAPTER 1. BANKRUPTCY 6 superficial
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CHAPTER 1. BANKRUPTCY 8 After treat
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CHAPTER 1. BANKRUPTCY 12 newly edit
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CHAPTER 1. BANKRUPTCY 20 or coverag
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CHAPTER 1. BANKRUPTCY 22 homestead
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CHAPTER 1. BANKRUPTCY 24 log seizab
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CHAPTER 1. BANKRUPTCY 26 on the bas
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CHAPTER 1. BANKRUPTCY 28 to seizabl
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CHAPTER 1. BANKRUPTCY 31 CARA utili
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CHAPTER 3. MEDIGAP 134 3.6.2 Causal
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CHAPTER 3. MEDIGAP 136 3.6.3 Robust
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CHAPTER 3. MEDIGAP 138 calculated u
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CHAPTER 3. MEDIGAP 140 (10000,11000
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CHAPTER 3. MEDIGAP 142 Table 3.2: S
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CHAPTER 3. MEDIGAP 144 Table 3.4: H
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CHAPTER 3. MEDIGAP 146 Table 3.6: S
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CHAPTER 3. MEDIGAP 148 Table 3.8: R
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CHAPTER 3. MEDIGAP 150 Table 3.10:
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CHAPTER 3. MEDIGAP 152 Table 3.12:
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CHAPTER 4. YEAR-END SPENDING 154 bu
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